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Digest of important case law January 2013 to November 2013
February, 26th 2014

S.2(14): Capital asset–Pattadar passbook–Agricultural land Capital gain on acquisition of land was held to be exempt. [S.10(37)]
It was noted that as per copy of pattadar pass book, assessee was an agriculturist. Further, returns of income for earlier assessment years had been furnished to submit that agricultural income from said land had been declared for two years immediately preceding date of transfer. Held, on facts, assessee satisfied requirements of section 10(37) and, thus, capital gain, if any, received by assessee on acquisition of land was exempt from tax. (AY. 2005-06)
Vinumoorthy Varalaxmi (Smt.) .v. ITO (2013) 59 SOT 216 (Hyd.)(Trib.)

S.2(14): Capital asset–Part of business undertaking–Right in property-Assessable as capital gain and not as business income. [S.2(47), 28(i), 45]
Right over a property, which is part and parcel of business undertaking of assessee, constitutes capital asset as per section 2(14), and relinquishment of right over such property is transfer of capital asset under section 2(47). Therefore, where the assessee, engaged in property development, had entered into agreement for purchase of property for setting up corporate office, gain on relinquishment of right in such property was taxable as capital gain and not as business income. (AY. 2008-09)
SSPDL Ltd. .v. DCIT (2013) 59 SOT 68(URO) (Hyd.)(Trib.)

S.2(15): Charitable purpose-Nominal fee- Assessee institution promoted by Government of India for creating awareness and promoting study of global standards regarding Company Prefix Number (GS1 Standard), automatic data collection and related services and providing education in universities and colleges regarding these standards–Charging a nominal fee from beneficiaries – Held to be charitable institute. [S.11, 12]
Assessee institution promoted by Government of India for creating awareness and promoting study of global standards regarding Company Prefix Number (GS1 Standard), automatic data collection and related services and providing education in universities and colleges regarding these standards. A small contribution by way of fee was charged to the beneficiaries. Revenue authorities accepted that assessee carried out activity under the residuary head that is as, ‘general public utility’ but, as the assessee was charging a fee, therefore, according to them assessee was engaged in business activity and therefore proviso to section 2 (15) was applicable.
On writ petition filed by the society against the action of the Revenue authorities refusing to grant exemption under section 10 (23C) (iv) of the Act invoking proviso to section 2(15) of the Act, the High Court directing the Revenue authorities to grant approval held that a small contribution by way of fee that the beneficiary pays would not convert charitable activity into business or trade in absence of contrary evidences.
GS 1 India .v. DIT(E) (2013) 94 DTR 105 (Delhi)(HC)

S.2(15): Charitable purpose–Objects of general public utility– Animal welfare cause. [S.12AA]
Advancement of animal welfare directed towards prevention and suppression of cruelty to animals or prevention or relief of suffering by animal is nothing but charity and society engaged in such activity falls within definition of general public utility as stated in section 2(15). (AY. 2010-11)
Retired Race Horse Welfare Society .v. DIT (2013) 59 SOT 209 (Hyd.)(Trib.)

S.2(15): Charitable purpose–Association of medical practitioners– Promotion of sale of nutritional medicine. [S.12AA]
The assessee was an association of medical practitioners and its object was only to provide services to medical professionals who were practicing in nutritional medicines; and that academic and research activity in environmental and nutritional medicine was only for purpose of promoting nutritional medicine and not for purpose of preservation of environment. The assessee could not be considered as a charitable institution and was not entitled for registration under section 12AA as it is not established for the purpose of charitable purpose but for the purpose of promoting sale of nutritional medicine and promotion of medical practice in nutritional medicine.
Indian Nutritional Medical Association .v. CIT (2013) 59 SOT 39(URO) (Cochin)(Trib.)

S.2(15): Charitable purpose-Teachings, ideals etc. of spiritual leaders with special emphasis on vegetarianism is charitable objects. [S.80G]
The assessee-trust engaged in the activities of propagating messages, teachings, ideals and philosophy of all religious and spiritual reformers, prophets and leading figures of world including Sikh Gurus with special emphasis on vegetarianism was entitled to renewal of exemption under section 80G(5) (AYs. 2008-09 to 2010-11)
Kuka Martyrs Memorial Trust .v. CIT (2013) 59 SOT 41 (URO) (Chd.)(Trib.)

S.2(15): Charitable purpose–running of coaching classes–not eligible for registration as charitable institution under section 12AA. [S.12AA]
Running of coaching classes cannot be treated as a charitable institution as provided in s. 2(15) of the Act and therefore, not eligible for registration under s.12AA of the Act.
M. Star Charitable Society .v. CIT (2013) 142 ITD 153 (Cochin)(Trib.)

S.2(22)(e): Dividend-Deemed dividend-Inter-corporate deposits (“ICDs”) are not “loans and advances” and are not assessable to tax as “deemed dividend”.
The assessee received an inter-corporate deposit of Rs.11.20 cr. from IFB Automotive Pvt. Ltd, a company in which it held 18% of the shares. The AO and CIT(A) held that the said ICD constituted “loans and advances” and was assessable as “deemed dividend” in the assessee’s hands u/s 2(22)(e). On appeal by the assessee to the Tribunal HELD allowing the appeal:

S.2(22)(e) refers to ‘loans’ and ‘advances’ and does not refer to a ‘deposit’. The fact that the term ‘deposit’ does not mean a ‘loan’ and that the two terms are two different & distinct terms is evident from the Explanation to S. 269T and S. 269SS of the Act where both the terms are used. Further, the second proviso to S. 269SS recognizes the term ‘loan’ taken or ‘deposit’ accepted. Once it is accepted that the terms ‘loan’ and ‘deposit’ are two distinct terms which have distinct meaning then if only the term ‘loan’ is used in a particular section the ‘deposit’ received by an assessee cannot be treated as a ‘loan’ for that section. The Companies Act, 1956 also makes a distinction between a “loan” and a “deposit” in s. 58A, 269 & 370. The distinction between a “loan” and a “deposit” is that in the case of a “loan”, the needy person approaches the lender for obtaining the loan. The loan is lent at the terms stated by the lender. In the case of a “deposit”, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. Also, s. 2(22)(e) enacts a deeming fiction and cannot be given a wider meaning than what it purports to cover. It has to be interpreted strictly. Thus, the view of the AO & CIT(A) that an Inter-corporate deposit is similar to a loan is not correct (Gujarat Gas & Financial Services vs. Asst. CIT (2008) 115 ITD 218 (Ahd)(SB), Housing & Urban Development Corp. Ltd.Jt. CIT (2006) 102 TTJ (Del)(SB) 936 & Bombay Oil Industries Ltd. v. Dy. CIT (2009) 28 SOT 383 (Bom) followed) ( ITA No. 1721/Kol./2012, AY. 2009-10, dt. 12.03.2013.)
IFB Agro Industries Ltd. .v. JCIT (Kol.)(Trib).

S.2(22)(e): Dividend–Deemed dividend-Loans and advances–Commercial transaction-Provision is not applicable. [S. 56]
The assessee, having a cold storage, held more than 10% shares of a company ‘B’, where public was not substantially interested. He received a sum of Rs. one crore from ‘B’ in advance against transaction of sale of cold storage claimed to be on account of commercial transaction. The assessee furnished copy of board meeting of company ‘B’, wherein a director of company was authorized to purchase cold storage of assessee up to maximum amount of Rs. 2 crores. Since the assessee had prima facie discharged burden in establishing that amount received by him was on account of commercial transaction, the provisions of section 2(22)(e) were not applicable to transaction in question. (AY. 2008-09)
Krishan Murari Lal Agarwal .v. DCIT (2013) 59 SOT 136 (URO) (Agra)(Trib]

S.2(29A): Long term capital asset- Short-term capital gain – Conversion of leasehold rights into freehold rights –Gain would be long term capital gain. [S.2(42A), 2(42B), 2(29A), 2(29B), 2(4), 45]
The assessee purchased certain lease hold property on July 7 ,1984 .The assessee applied for free hold rights , which was granted by the Collector on March 29, 2004 .She sold property on March 31, 2004 and declared long term capital gains on the transfer. The Assessing Officer held that since the property was sold within three days on March 31, 2004, the capital gains would amount to short term capital gains. The Tribunal held gain would be long term . On appeal by the revenue the court held that, conversion of property into freehold property was nothing but improvement of the title over the property, as the assessee was the owner even prior to conversion. Therefore, it would not have any effect on the taxability of gain from such property, in so far as the period over which the property was held. Gain was rightly held as long term.(AY. 2004-05)
CIT .v. Rama Rani Kalia (Smt.) (2013) 358 ITR 499 (All.)(HC)

S.2(31): Person-Registered society for charitable purposes is artificial juridical person.[S.10(23C)]
Once the society is formed, it would become a juridical person as opposed to natural persons. (AY. 2001-2002 to 2006-2007)
CIT .v. Children’s Education Society (2013) 358 ITR 373 (Karn.) (HC)

S.2(42A): Short term capital asset–Period of holding–Period for which asset held by previous owner.
Period for which asset was held by previous owner has to be added to period of holding of assessee and once period of holding of previous owner is added and period of holding becomes more than three years, then asset has to be treated as long term capital asset. (AY. 2007-08)
Lalitha Rathnam (Mrs.) .v. ITO (2013) 59 SOT 2(URO)(Chd.)(Trib.)

S.2(47): Transfer-Capital gains-Joint venture agreement-Handing over of possession–Development agreement-Irrevocable general power of attorney leading to overall control of property in hands of developer would constitute transfer under section 2(47)(v). [S.45, 53A of the Transfer of Property Act, 1882]
The assessee was a member of a housing society which entered into a joint development agreement with two developers, whereby each member was entitled to monetary consideration and a flat in lieu of existing plot. An irrevocable power of attorney was also executed and registered in favour of developers. Held, an irrevocable general power of attorney leading to overall control of property in hands of developer would constitute transfer under section 2(47)(v), even if developer did not have exclusive possession.
Also, non-registration of joint development agreement cannot be reason for non-applicability of section 2(47)(v), and where developers were vigorously pursuing issue of permission/sanction for executing agreement, requirement under section 53A of Transfer of Property Act, regarding willingness of transferee to perform contract, was also fulfilled. Therefore, capital gain tax had to be paid on total consideration arising on transfer, including consideration already received as well as consideration due and to be received later. (AY. 2008-09)
Binder Khokher (Smt.) .v. ACIT (2013) 59 SOT 141(URO) (Chd.)(Trib.)

S.2(47): Transfer-Capital gains-Handing over of possession and on the date of agreement where a small portion of consideration was received. [S.45, 53A of the Transfer of Property Act, 1882]
Where the assessee-housing society entered into Development Rights Agreement with a developer, transfer of property could be said to have taken place only when possession was handed over to developer, and not on date of agreement, when only a small portion of consideration had been received. (AY. 2009-10)
Bhatia Nagar Premises, Co-operative Society Ltd. .v. ITO (2013) 59 SOT 134(URO) (Mum.)(Trib.)

S.2(47): Transfer-Capital gains-Relinquishment, in case of family settlement by instrument of release is liable to capital gains tax. [S.45]
Release/relinquishment of right over family property against receipt of a sum would be covered by definition of ‘transfer’ in section 2(47)(i) and where share in property is released against receipt of cash, instrument of release cannot be called a family settlement and would be covered by term ‘transfer’ and exigible to capital gains tax. (AY. 2007-08)
Lalitha Rathnam (Mrs.).v.ITO (2013) 59 SOT 2(URO) (Chd.)(Trib.)

S.4: Charge of income-tax–Exemption to International Bodies– International Finance Corporation-Matter remanded. [S.40(a)(i)]
Since the lower authorities had considered claim of assessee vis-à-vis United Nations (Privileges and Immunity) Act, 1947, whereas, enactment which had to be applied was International Finance Corporation (Status, Immunities and Privileges) Act, 1958,the matter required a fresh look by Assessing Officer, and hence, was sent back.(AY. 2006-07)
Redington (India) Ltd..v. ACIT (2013) 59 SOT 152 (URO) (Chennai) (Trib.)

S.4: Income–Gifts received by amateur cricketer-Not assessable as income.
Tribunal held that in subsequent year the Assessing Officer himself has accepted that the assessee is an amateur cricketer and not a professional cricketer, there was no justification to hold that during the years relevant to A. Ys. 1992-93 and 1993-94 the assessee was a professional cricketer. In case of other cricketers the appellate authorities and the courts have decided the issue in favour of assessees. Tribunal directed the Assessing Officer to allow exemption to the assessee as per circular No. 447 dated 22-1-1986. Tribunal followed the decision of Bangalore Bench of Tribunal in the case of G. R. Vishwanath v. ITO (1989) 29 ITD 142 (Bang.) and decision of Delhi Bench of Tribunal in the case of Manoj Prabhakar in ITA No. 564 and others/Delhi/2004 and the circular No. 447 dated 22-1-1986. (AYs. 1992-93, 1993-94)
ACIT .v. Kapil Dev (2013) 157 TTJ 686 (Delhi)(Trib.)

S.5: Scope of total income–No interest bearing funds given as interest free advances to sister concerns, no addition on account of notional interest income warranted.
The assessee made interest free advances to its sister concerns. The AO added notional interest on the advances made to the assessee’s total income. The CIT(A) deleted the addition on the ground that no interest bearing borrowed funds were used to make such interest free advances to its sister concerns. He also observed that no interest expense has been claimed in the profit and loss account. The Tribunal confirmed the order of the CIT(A) relying on the decision of Guwahati High Court in the case of B & A Plantations & Industries Ltd. v. CIT (2000) 242 ITR 22.On appeal by the department, the High Court dismissed the departmental appeal observing that there was no substantial question of law.(AY. 2005-06).
CIT .v. Arihant Avenue & Credit Ltd. (2013) 36 14 (Guj.)(HC)

S.5: Scope of total income–Accrual-Surcharge on belated payment of bill being not accrued is not liable to be assessed.
Held, that part of the amount of surcharge on belated payment of bill that was subject to waiver/protest and was not mandatorily enforceable at time of payment of bills which was not realized, did not amount to accrued receipt taxable as income as it was hypothetical in nature.(AY. 2007-08)

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